Wednesday, December 18, 2013

Thanks to increased global grain production and lower domestic demand for grain for ethanol, crop producers will find 2014 to be tougher than the past few years and should prepare now for lower prices.

“Prices reflect that we have moved from an era of scarcity to one of adequate inventories and prices have responded by moving lower,” said Matt Roberts, an Ohio State University Extension economist. “We are already seeing lower prices come into the market, and unless U.S. or South American acreage declines, those prices are likely to continue to move lower.

“The prices we had earlier in the year aren’t guaranteed to return.”

Thanks to several factors including no growth in ethanol demand and expanded global crop acreage, markets are moving back toward matching supply and demand, Roberts said.

Add another year of 160 or more bushels per acre yields on corn and 42 bushels per acre soybean yields, and growers can expect to see even lower prices that are well below the cost of production on land that has been purchased or cash-rented in the past three to four years, he said.

“Prices will only return to profitable levels if supply declines due to acreage leaving primary row crops or demand returns. This will likely create a significant financial strain in crop-growing areas.”

In order to prepare for the impact of lower prices, farmers should build a working capital cushion of a year to 1.5 years of land charges above what they typically need to operate.

Tuesday, November 12, 2013

A strong performance by the top three international markets kept U.S. beef exports on an upward path in August, according to statistics released by the USDA and compiled by the U.S. Meat Export Federation (USMEF).

Beef sales to Japan, Mexico and Canada all posted solid gains in August along with a resurgent Taiwan market as overall U.S. beef exports grew 5 percent in volume and 16 percent in value compared to year-ago levels, reaching 105,544 metric tons valued at $563.3 million. For the first eight months of 2012, beef exports are up 1 percent in volume and 10 percent in value to 767,017 metric tons valued at $4.01 billion.

The continued absence of the Russian market – closed to U.S. beef and pork products since February – continues to hinder exports. Excluding Russia, U.S. beef exports are up 8 percent in volume and 16 percent in value.

“Challenges appear in many forms, including market closures and disruptions, international competition and product oversupply,” said Philip Seng, USMEF president and CEO. “For example, while the United States has enjoyed impressive growth in beef exports to Hong Kong, we remain locked out of the fastest-growing beef market in the world – China.”

Both pork and beef exports produced solid per-head values in August. The export value per head of fed slaughter for beef in August averaged $253.87, up $46.16 from last year.

Tuesday, October 22, 2013

Corn prices continue the long retreat from the peak of September 2012, declining to the lowest level since late August 2010. The most recent price weakness reflects both supply and demand considerations, said University of Illinois agricultural economist Darrel Good.

“On the supply side, ongoing reports of yields that exceed expectations in many areas suggest that the next USDA forecast of the U.S. average yield will be at least equal and perhaps exceed the September forecast of 155.3 bushels.”

Good said that there is still some uncertainty about the magnitude of harvested acreage that will not be cleared up, at least partially, until the USDA releases the next /Crop Production /report. Even so, it appears that production will be large enough to result in a sizable buildup in stocks by the end of the current marketing year.

“On the demand side, the partial shutdown of federal government activities leaves a void in the usual flow of weekly data, including export sales, export inspections, livestock slaughter, and broiler chick placements. The U.S. Energy Information Administration also discontinued weekly estimates of ethanol production, imports, and stocks.”

The primary news on the demand side has been the leaked report of an apparent EPA proposal to reduce the magnitude of biofuels mandates, including renewable (ethanol) mandates, under the Renewable Fuels Standards (RFS) beginning in calendar year 2014.

The RFS currently calls for a total of 18.15 billion gallons of renewable fuels in 2014, including 3.75 billion gallons of advanced biofuels. The remaining 14.4 billion gallons can be satisfied with either advanced or renewable biofuels. The rumored proposal for 2014 is for a total of 15.21 billion gallons of biofuels, including only 2.21 billion gallons of advanced biofuels and a maximum of 13 billion gallons of renewable biofuels.

The possibility of dropping the overall mandate by almost three billion gallons was not widely anticipated. The reduction in the non-advanced component of the mandate from 14.4 to 13 billion gallons has been interpreted as a negative development for corn demand in 2014 and
beyond.

Domestic ethanol production has been relatively constant for the past four years, totaling 13.3 billion gallons in 2010, 13.9 billion in 2011, and 13.3 billion gallons in 2012. Production in 2013 will be within the range of the past three years.

Ethanol production in 2014 will be influenced by a combination of the magnitude of the RFS mandate, the magnitude of the domestic blend wall for ethanol, the extent of the use of RINs credits to meet the RFS mandate, the net trade balance for ethanol, and the magnitude of discretionary blending of ethanol, if any.

Domestic consumption of ethanol was near 12.9 billion gallons in 2010, 2011, and 2012. Consumption during the first seven months of 2013 was about 100 million gallons larger than during the same period last year. With some expansion in E85 consumption, it appears that the
domestic blend wall is expanding slowly and may be as large as 13.2 billion gallons in 2014.

The price of ethanol is primarily determined by the price of corn. Based on a University of Illinois analysis, the current retail price of E10 near $3.30 would require corn prices near $3.70 to make E85 competitive at the pump on an energy equivalent basis. Persistently low corn prices then could motivate an expansion in E85 infrastructure and discretionary blending of ethanol.

Monday, July 29, 2013

A sharp break in old-crop soybean prices and basis means that the market believes that supplies will be fully adequate until the harvest of the new crop begins in six or seven weeks, according to University of Illinois agricultural economist Darrel Good.

“For that to be the case, the domestic crush in July and August would have to be down sharply from the level of crush last year and sharply below the pace in June of this year.”

For old-crop soybean stocks at the end of the year to be at a pipeline level of 125 million bushels, and to accommodate exports of 1.33 billion bushels, the size of the domestic crush for the year ending August 31 will be limited to 1.66 billion bushels. That is 2.5 percent less than the crush in the previous year.

Based on estimates from the National Oilseed Processors Association, the domestic crush exceeded that of last year in each of the first five months of the current marketing year (September 2012 through January 2013). The crush was about equal to that of a year ago in February 2013 and was less than that of a year ago in each month from March through June. The crush in both May and June was about 11 percent smaller than in the same months in the previous year.

For the entire 10-month period, the crush this year exceeded that of last year by about 1.6 percent.

The crush during the final two months of the marketing year needs to be 24 percent less than that of a year ago in order to maintain a minimum pipeline supply by year end. The size of the needed reduction underscores the surprise in the timing and magnitude of the recent collapse of old-crop soybean prices”.

According to Good, the domestic crush could be larger than 1.66 billion bushels if exports fall short of the 1.33-billion-bushel projection, ending stocks are reduced to less than 125 million bushels, or June 1 stocks were actually larger than estimated.

To reach 1.33 billion bushels, exports during the final five weeks of the marketing year need to average only 4.6 million bushels per week, only about 1.4 million above the most recent five-week average. It appears exports will be very close to the projected level.

“In recent history, the smallest year-ending stocks were 112 million bushels in 2003-04. However, those stocks represented 4.5 percent of marketing year consumption. It appears unlikely that year-ending stocks this year could be much less than 125 million bushels,” Good said.

It is possible that old-crop soybean supplies are more abundant than is implied by the June 1 stocks estimate, requiring a smaller reduction in the domestic crush in July and August, he added.

“There is no reason to suspect that supplies are larger than estimated other than the recent sharp decline in prices. Still, Sept. 1 stocks estimates have been surprisingly large in some years, resulting in an upward revision in the estimated size of the previous year’s harvest. The most recent examples were in 2007 and 2012 when the estimate of the previous year’s crop was increased by 90.6 million bushels and 37.5 million bushels, respectively.”

Tuesday, May 28, 2013

Coffee supplies are exceeding demand for the second straight year, according to Volcafe, driving down coffee bean prices. The world’s top producer, Brazil, will harvest a record 57.8 million bags in the 2013-2014 season. Each bag weighs 132 pounds, or 60 kilograms. Market prices on coffee beans have plunged 12 percent in the last two weeks and are headed for the biggest monthly drop since October. [BusinessWeek]